Section 194C of the I.T. Act provide that any person responsible for paying any sum to any resident for carrying out any work (including supply of labour) for carrying out any work, in pursuance of a contract between the contractor and a specified person, shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by any other mode, deduct amount equal to 1%,
where the payment is being made or credit is being given to an individual or HUF, 2% where the payment is being made or credit is being given to a person other than an individual or HUF, of such sum as Income Tax on income comprise therein. Explanation attached to this section provides the definition of work. In this definition payment to a hotel for boarding does not fall within the ambit of work. The assessee has not hired services of any event organizer. It simply booked the hotel for boarding. The hotel did not work on behalf of the assessee as a contractor. Otherwise every guest whosoever stay in a hotel ought to have deducted TDS while making booking or staying in it. The Hon’ble Bombay High Court has considered this issue in the case of East India Hotels vs. CBDT in CWP No.2 104 of 1994. The CBDT had issued a circular bearing No. of 681 dated 8.3.1994 which was challenged in the High Court. The Hon’ble High Court has considered the following question based on the circular and has quashed the circular. The Hon’ble Court held that section 194 C is not applicable for payments made by the customer to the hotel. The first and last three paragraphs of the judgment read as under:
“1. The said circular provides that all service contracts are covered under section 1 94C of the Income Tax Act, 1961 (‘Act’ for short). As a result whereof, every customer of the petitioner No.1 hotel, while making payment to the hotel for occupying its room and availing other facilities /amenities provided by the hotel is required to deduct income tax at the rate specified in section 194C of the Act.”
22. In the present case, we are concerned with the question as to whether the services rendered by the petitioner hotel to its customers is covered under section 194C of the Act?
23. As noticed above, the facilities/amenities made available by the petitioner No.1 hotel to its customers do not constitute ‘work’ within the meaning of section 194C of the Act. Consequently, the circular No.681 dated 8/3/1994 to the extent it holds that the services made available by a hotel to its customers are covered under section 1 94C of the Act must be held to be bad in law.
24. For all the aforesaid reasons, the petition is allowed by quashing the circular No.681 dated 8/3/1994 to the extent it holds that section 194C of the Income Tax Act applies to payments by the customers to the petitioner No.1 hotel for availing the facilities/amenities made available by the petitioners”.
Respectfully following the decision of the Hon’ble Bombay High Court, we delete the disallowance made by the Assessing officer.